More than four months after the Pakistan Stock Exchange (PSX) was listed on the local bourse, many people are scratching their heads trying to comprehend the phenomenon of ‘a stock exchange listed unto itself’.

Yet, the PSX became the first self-listed capital market in South Asia on June 29 this year. The share in PSX is listed under the ‘investment banks/investment companies/securities companies’ sector. But to prepare the bourse to be listed on the Exchange, the regulators had to follow a lengthy process.

In 2015-16, the Lahore Stock Exchange and Islamabad Stock Exchange were integrated into Karachi Stock Exchange which went to create the Pakistan Stock Exchange Limited.

The ownership of the stock exchanges in Pakistan, which had been in the hands of the stock brokers for decades, was separated from its management. The stock market signed a sale and purchase agreement (SPA) with a Chinese consortium that won the bid for a 40 per cent stake or 320 million shares in the PSX by putting $85m (at Rs28 per share) on the table.

The Consortium comprises three Chinese exchanges: China Financial Futures Exchange Company Limited, Shanghai Stock Exchange and Shenzhen Stock Exchange; and two local financial institutions: Pak China Investment Company Limited and Habib Bank Limited.

Market participants fret over the fact that the expectations from the Chinese ‘anchor investors’ have remained unfulfilled

With 40pc shares of the PSX already distributed to the original owners — the 200-strong stockbroker fraternity — the remaining 20pc or 160m shares of the bourse were offered to the public in an initial public offering (IPO).

Following the completion of the process, the PSX stock started trading on the bourse at the opening price of Rs28/-. With the meltdown in equity market witnessed since May this year, stocks have been badly battered. PSX share price has also plunged which last Thursday closed at Rs17.55 with trading in 0.63m shares.

To accommodate the new owners of the Exchange, the composition of the board of directors also changed. Chairman of the bourse Muneer Kamal, mentions in PSX annual report, 2017: Accordingly, the SPA with the Consortium members, four nominees of the Consortium replaced four SECP-nominated directors on the Board of PSX.

The right of nominating personnel to three key management positions was also provided to the Chinese Consortium. In the 10-member board, four seats are held by the brokers. The Securities and Exchange Commission of Pakistan (SECP) recently approved the appointment of Richard Morin, a Canadian national, as chief executive of the PSX, who is expected to take charge from Dec 1.

The PSX not only has a narrow base, but fewer than four products are offered as trading platform: Ready market, cash settled futures and deliverable futures. Much of the trading transpires in just the ‘Ready market’.

Market participants including the managers of mutual funds fret over the fact that the expectations from the Chinese ‘anchor investors’ has remained unfulfilled. The strategic investors were expected to fast track the roll out of various products including derivatives that could enable greater liquidity generation. They were also banked upon to move forward towards greater integration with global capital markets and upgrade technology.

There were talks of cross boarder listings and the purge of several evils that still plague Pakistan’s equity market. Yet, not enough progress appears to have been made on those issues so far by the Chinese management. The latest wide-spread grievance of the investors is the leakage of information on trading data.

It has to be conceded that the regulators’ crackdown has helped to curb much of the ‘insider trading’ and unlawful leveraging. A broker confided that the Chinese stakeholders are currently an unhappy lot. With the price of the stock in PSX that they bought at Rs28 sinking by 37pc within months, the new owners of the bourse have suffered huge losses.

Stakeholders in PSX have long protested against the bar on foreign investors to purchase the PSX stock. “It makes no sense to let foreign investors dabble in stock of the rest of 561 listed companies, except the PSX”, said an old-time broker. Yet, anecdotal evidence suggests that the broker fraternity is surreptiously accumulating PSX stocks and increasing their holdings.

Realisation dawns upon most investors that the company has a strong balance sheet. At the close of the last financial year on June 30, 2017, PSX carried on its balance sheet total assets of Rs12bn. The balance sheet also holds a huge sum of Rs2.91bn under the “PSX Investors Protection Fund”, which provides comfort to both the brokers and their clients.

The share capital of the company stood at Rs8.01m at end FY2016-17. The PSX earned profit after tax of Rs277m and the board distributed cash dividend to stock holders at Re0.30 per share. According to the annual report, at the end of the year, there were 373 Trading Right Certificate Holders (TREC) with 22 having surrendered/relinquished their certificates.

Published in Dawn, The Business and Finance Weekly, November 20th, 2017